How to enable disruption

India has one of the world's most inefficient supply chains for products. The supply chain and logistics costs for instance are 12 per cent of our GDP, vis-à-vis six to seven per cent for developed countries. In developed countries, retailers like Walmart, Tesco, and so on have become the channel masters of the food supply chain, taking over from the manufacturers. In India, there is no equivalent. Practices like data integration, financial flow management, supply-demand matching, forecasting, efficient transport scheduling etc., need to be integrated into our system. This would make the supply chain more efficient, giving the customer better pricing and the farmer a better realisation for his products.

The story of ground transportation in India is no different. Public transportation, save and except a few stray cases, continues to be abysmal. All of us thus have to deal with errant and arrogant autowallahs on one side or on the other have to endure the trappings of owning a vehicle - EMIs, fuel, maintenance, etc. Enter the cab aggregators - Uber, Ola, Taxi for Sure, and so on. Barring stray instances, they offer customers a good vehicle on demand, a courteous driver, transparent and convenient billing and at a cost that is comparable to local autos and cabs, all through a click or two. Not only are they trying to disrupt the model of car ownership but are also offering an alternative to the obnoxious auto and cab drivers who refuse passengers with impunity or charge arbitrarily. The reason behind this metamorphosis is the "platform play", where a marketplace for demand and supply has been created and made efficient, resulting in the customer getting a better value for money and clearly a superior experience.

Historically, middlemen have fulfilled an important role in getting goods from the manufacturer to the end-user. Because the intermediaries don't really change the physical attributes of an item, the only function they seem to perform is moving information. Electronic commerce thus reduces the cost of goods through the elimination of brokers and distributors, by automating the exchange of information directly between the producer and the user.

The proliferation of the internet and smartphones has led to massive consumer empowerment. With 250 million internet users in India and an expected growth rate of 39 per cent in rural and 29 per cent in urban areas, and with the smartphone user base expected to grow by 45 per cent next year, the internet is powering businesses and disrupting them. It has shifted the supplier-distributor relationship from a hierarchically layered structure to an open structure, the magnitude of which is still underappreciated. Many technological innovations have enabled businesses to expand exponentially. Many new start-ups don't really make anything. Instead of cutting out middlemen, they've become middlemen themselves, connecting people with specific genres of services or merchants. Successful examples of this globally include transportation providers Uber and travel rental startup Airbnb.

A similar transformation is taking place in the online retail space. Of India's $500-billion retail sector, $6 billion is presently transacted online. This might hit $100 billion by 2019. Thus middlemen will see redundancy growing, physical retailers will see business being taken away and retail real estate will witness low occupancy. Landlords will also need to adapt to the changes to their lessees' requirements. For example, real-estate developers may feel threatened on the retail side, but they will have other big opportunities - building warehouses, for instance.

Governments who treat "layered supply chain" players as their vote banks will be under immense pressure to increase protectionism. However, they need to understand the new world order and proactively frame legislation that creates better value and not hurdles for both producer and consumer.

Technology entrepreneurs generally focus on a unique opportunity and then scale up rapidly, in some cases making it a "winner-take-all market". Legislators cannot view these businesses from the prism of their traditional legislation of competition and monopoly. As long as the customer is not being compromised, monopolistic behaviour may not necessarily be a bad thing.

A couple of instances suggest that government response globally is not very thoughtful. Regulators and politicians in Europe are trying to strongly reduce the influence of US internet companies in general - and to damage Google and Facebook in particular. Both China and Russia have pushed for new international treaties governing cyberspace. China has also been heavily criticised for censoring the internet by blocking news or comment that it deems damaging.

Back home the response of our government is no different. The government expected everything to be hunky-dory once Uber was banned. It should have reacted not by banning taxi companies, but by putting in place the very regulations that they haven't implemented up until now. It singled out Uber, perhaps more because it is a high-profile, politically weak service, than because of any risks riders may face. Not so long ago, the Karnataka government also banned Amazon from selling electronics and several other products from its warehouses in the state. The government wanted Amazon to pay VAT as it wanted the company to take ownership for the products stored in its warehouse well before a customer orders them.

A forward-looking proactive government can be ahead of the curve and facilitate the ushering in of technology for better and more efficient business models. They must work towards helping in nurturing the development of a healthy internet ecosystem, one that boosts infrastructure and access, builds a competitive environment that benefits users, lets innovators and entrepreneurs thrive and nurtures human capital.

This kind of government support might be a key enabler in addressing some of India's own grand challenges - like the Digital India vision and the aspiration to create a number of smart cities. Gone are those days where a government could protect its businesses by playing the big daddy. In a country like ours where 60 per cent of our population is below 60 years of age, of which most are tech-savvy, the government cannot deprive its customers of any opportunity. This very population that has elected the government could be the one to oust it.

In other words, they need to consider the long-term societal impact rather than short-term political gain. Technology is after all just a tool to facilitate change

How to never give up?!

Why is it that we fail in life? 

Is it because we are not smart enough? Is it because we don’t know the technicalities of something? Is it because our people skills are bad? Is it because we didn’t do well in school to get good grades? I am sure I can come up with a lot of similar sounding questions and the answers would be equally varied. But I have never come across an answer more convincing than “I gave up”. I guess that perhaps is the single most important and sensible reason for failure in life. It reminds me of a dialogue from the movie Tin Tin -

“There is something you need to know about failure Tin Tin, you can never let it defeat you”

Without much ado, let us try and see what the above brochure is trying to tell us

1) Stay Alive

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Yes of course! This is the most important thing. There will be a lot of situations which push you down, which make you feel sad, which make you worry and also make you think that life is over. But find a way to stay alive. There will be light in the darkest corner of the sky. Just ensure that you are there to see it. It is very easy to give up and put your hands on your head and say it is all over. You can do that any day. It takes guts to stay alive, it takes guts to believe, it takes guts to stick to your guns when everything around you is falling apart. Success doesn’t lie in never falling, it lies in getting up as soon as possible and STAYING ALIVE

2) Lower your expectations

It is very optimistic of us to say that we are going to invent a product and the next day there would be a queue of people who would want to buy it no matter what price we quote. I am not here to shatter that dream of yours but I am going to tell you that inventing is just a part of the business. There is marketing, there is sales, there is brand building, there is negotiation, there is compromises and so much more. Though I would like to shoot to the stars, I would also like to know that it is sometimes unreasonable that a star comes in search of you. It takes time, it takes effort but it does come. Over 99.9% of the success has taken time, it has not happened overnight. So.. respect the time and cling on to your belief, it is bound to come with the right approach

3) Don’t be a wimp! 

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You are way stronger than you tell yourself and others know you as and infact stronger than you yourself know you as. You are more capable to handle the pain than you think. It is very natural and easy to drown in the glory of self pity and keep feeling sorry for yourself. If you keep feeling sorry about the way things are, you will keep feeling sorry for the rest of your life. So.. Buck up, it is going to be a tough wind out there, brace it. You were not born or raised to be a quitter!

4) Persist! 

We don’t mean to say that you should be stuck in the same loop forever. If plan A doesn’t work, go for plan B and then plan C. You have 26 letters there and if that doesn’t suffice you have A1 to An and then keep going on.. Point is, it depends on how much you believe in the dream, how much you believe in whatever you have put in for it. Nowhere on the birth certificate was it said that you would succeed at everything you put your hands on in life. You are going to miss out on a few things and the reasons might be as simple as a wrong timing or a big trust issue. But you gotta persist, the moment you give up or think of giving up, the dream dies and so does all the effort to get there.

5) Fake it! 

If you are falling short of motivation, FAKE IT! Think of how it will be to succeed. Think of all the dreams you would be realizing, think of how people around you would respond to it. You don’t have to wait for that one final day when success will sweep you off your feet, you can celebrate each day, be motivated by every event and that drives you forward and keeps driving you forward.

6) Don’t compare! 

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Your life will always be different compared to your peers. The efforts they have put in and the efforts you have put in are different. There is something very special told about an entrepreneur – success comes to you like an exponential scale, all the effort that you have put in, all the sacrifices you have made will pay you back. You just have to wait till the tipping point where the scale changes. It will never be similar to what your friends or peers have but it will be that much better. So don’t worry about comparing, you are fighting with a bigger target here.

7) The night is the darkest before dawn.

We have heard of a hundred inspirational stories where people have flipped their lives in that one decisive moment the moment where they decided to persist, it may be SONY or KFC or APPLE or MICROSOFT, they have all had those bad days, the days which have made them think whether they should wind up. But what made them stay was that they decided to test the waters a little more and that little more made a hell lot of a difference !

So…

Still thinking of giving up?

Shanta Kumar Committee on Restructuring of FCI submits report to PM

The High Level Committee (HLC) for Restructuring of Food Corporation of India (FCI) chaired by Shanta Kumar has submitted its report to the Prime Minister Narendra Modi.

Some Recommendations of Shanta Kumar Committee

On procurement related issues:  

• FCI should hand over all procurement operations of wheat, paddy and rice to Andhra Pradesh, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Punjab as they have sufficient experience and reasonable infrastructure for procurement.
• FCI procurement should focus on eastern belt, where farmers do not get minimum support price.

On stocking and movement related issues:

• FCI should outsource its stocking operations to various agencies such as Central Warehousing Corporation (CWC), State Warehousing Corporation (SWC), Private Sector under Private Entrepreneur Guarantee (PEG) scheme.
• It should be done on competitive bidding basis, inviting various stakeholders and creating competition to bring down costs of storage.
• Movement of grains should be containerized in order to reduce transit losses. While, railways should have faster turn-around-time by having more mechanized facilities.

NFSA and PDS related issues

• Restructuring the National Food Security Act (NFSA) by virtually diluting its scope and coverage from 67 per cent of population to about 40 per cent population.
• In order to curtail leakages in PDS, government should defer implementation of NFSA in states that have not done end to end computerization.

End to end computerization:

• It recommends end to end computerization of the entire food management system, starting from procurement from farmers, to stocking, movement and finally distribution through PDS.
• It will help for real time basis monitoring in order to curb leakages.

Background

In August 2014, Union government had set up 8 members High Level Committee (HLC) on FCI restructuring. It was restructuring chaired by Shanta Kumar.

Other members are: FCI Chairman-cum-Managing Director C Viswanath, Electronic and IT Secretary Ram Sewak Sharma, Former Chairman of Commission for Agricultural Costs and Prices (CACP) Ashok Gulati, Chief Secretaries of Punjab and Chhattisgarh; and Academicians G Raghuram and Gunmadi Nancharaiah of IIM-Ahmedabad.

Census: Hindu share dips below 80%, Muslim share grows but slower

 The share of Hindus in India’s population has shown the sharpest dip in a decade since Independence and has dropped below 80 per cent.

According to figures of the religion census of 2011, yet to be officially released, Hindus comprised 78.35 per cent of the total population of 121.05 crore, compared with 80.45 per cent of the total population in 2001. In absolute terms, however, the Hindu population increased 14.5 per cent from 82.75 crore to 94.78 crore during the period (2001-11).

The 2011 religion census data also shows that the share of Muslims in the population has risen 80 basis points (one basis point is one-hundredth of a percentage point) from 13.4 per cent in 2001 to 14.2 per cent with some border states showing a high increase. This decadal increase in share, however, is lower than the 1.7 percentage points increase registered in the previous decade, 1991-2001.

In absolute terms, the number of Muslims increased 24.4 per cent to 17.18 crore from 13.8 crore during the period 2001-11. And during the previous five decades — 1951 to 2001 — their share rose from 9.8 per cent to 13.4 per cent.

The share of Hindus over the previous five decades — between 1951 i.e. post-partition and 2001 — dropped 3.65 percentage points from 84.1 per cent to 80.45 per cent of the total population. Again in absolute terms, the Hindu population more than doubled (172 per cent increase) from 30.36 crore to 82.75 crore during the 50 years till 2001. The drop in share of Hindus, due to a steady dip in the rate of growth of the Hindu population, comes on the back of rising education and income levels of the majority community.

Last Wednesday, Union Home Minister Rajnath Singh had announced that the religion data of census 2011 would be released soon. The data was ready in January 2014 but the UPA government, facing a resurgent BJP, took the decision not to release the data ahead of the Lok Sabha elections. In normal course, the data from the religion census is released within three years of the census enumeration exercise being completed. By this yardstick, the data should have been out by March 2014.

The share of other religious groups like Sikhs and Christians in the total population remained steady at a little over 2 per cent each, roughly in the same range as in the 2001 census.

The Census 2011 data shows that since independence, the share of Hindus has dropped by 5.75 percentage points while the share of Muslims has risen by slightly more than 4 percentage points. According to the 1951 census, Hindus comprised 84.1 per cent of the population post partition, after the inflow of Hindus from Pakistan and the outflow of Muslims at partition changed in the country’s demography. Hindus comprised just about 66 per cent of the population of India before partition.

Registrar General of India C Chandramouli briefed the Home Minister again on Thursday about the findings of the religion census before it is finally released. However, home

- ministry sources said with the dates for Assembly elections in Delhi and bypolls in six states already announced and the poll code of conduct in place, the announcement could be pushed to next month or even to after the Budget session of Parliament. Chandramouli, the officer who has dealt with the religion data since it was collated in 2011, was given a three-month extension in December 2014.

Don’t doubt your ability: Abdul Kalam to youngsters -

Former President APJ Abdul Kalam on Saturday asked youngsters never to doubt their ability as he recalled his “doubt and confusion” when then ISRO chairman Satish Dhawan had asked him to make a rocket system to put satellite into orbit in a period of seven years.

“One fine day he said, Kalam you can take the budget you want, the number of people want and anything needed I will get it sanctioned from the cabinet, but you have to do this.

“I was surprised and confused, there were many people senior to me in my establishment. Why me? Will I be able to do it? I was doubtful. You should not be,” the 83-year-old scientist told youngsters who thronged the Diggi Place here to hear his address at the ongoing Jaipur Literature Festival.

He gave the mantra, “I dream and I will fly one day.”

“I always dreamt of being a pilot, so I enrolled myself into a course of aeronautical engineering. When I went before the selection panel to become a pilot, there were 10 contestants and 9 seats and I was the one to be dropped.

“I was disheartened that I could not become a pilot but I became the President of India,” Kalam said during a session titled ‘The visionary: Dr APJ Abdul Kalam’.

“When I became the President I told the Air Chief to teach me how to fly and he trained me for six months. I did not become a pilot but I could still fulfil my dream of flying, because I dreamt that I will fly. Dreams transform into thoughts and thoughts result into action,” he said, as the crowd burst into a large round of applause.

Kalam  made the youngsters repeat after him and vow to make India and world a better place to live.

“When there is righteousness in the heart there is a beauty in the character…when there is beauty in the character there is already in the home…when there is already in the home there is order in the nation and when there is order in the nation there is peace in the world…,” he said as people repeated after him.

“Take a vow…that whatever you do in life you will always think what I can give. All the trouble starts when we think ‘what I can get’ , that’s where the roots of corruption are,” he said.

Sharing his vision for 2020 and beyond, which are also the titles of his two books — Vision 2020 and Beyond 2020, Kalam said that the five key areas the country needs to focus upon are education, infrastructure, entrepreneurship, health and sustainable development.

“We need to transform our education system too. My suggestion is that 30 per cent of the syllabus in class 9-12 should be reduced and skill-based courses should be introduced in

- schools. “So, when a child passes out of class 12, he has two certificates one of his academic credentials and another of his school credential. “Similarly in colleges, there should be a concept of a degree plus diploma in the same fashion,” he said. Kalam said that entrepreneurship is the key to economic development of the country and to fulfilment of VISION 2020 as well. “We need more employment generators and not employment seekers. Our IT sector is doing well, pharmacy is doing well, our agriculture is just excellent. We need more infrastructural development,” he said - 

Intangibles and deliverables

When they meet, the core challenge before Narendra Modi and Barack Obama will be how best to harness their personal and national goodwill towards each other for positive outcomes that relate to the concerns of the common people

In two days, U.S. President Barack Obama will grace India’s Republic Day celebrations with his presence. Prime Minister Narendra Modi’s invitation to him to do so was not impulsive, though it took Mr. Obama by surprise. It is an affirmation of India’s willingness to invest in its relationship with the United States, and signals India’s belief that the two countries are good for each other. During his visit to Washington last September, Mr. Modi got a sense of the perception of India held by the U.S. leadership — its administration, business, and Congress. Finding positive resonance, he decided to request a return visit from Mr. Obama, who accepted the invitation upon realising its significance.

It is in its intangibles that this visit will be evaluated, not just on the balance sheet of deliverables. “The Obama visit served its main purpose simply when announced,” quipped Ambassador K.S. Bajpai. “It signalled that India can again be taken seriously, and that America is in the forefront of doing so.” Much of what will happen next will depend on India’s economic trajectory and the diligent management of relations by the leadership of the two countries.

A ‘two-way street’

India’s invitation to the U.S. President came at a time when both the International Monetary Fund (IMF) and the World Bank predicted that India is on its way to overtake China’s growth. Indeed, the economic outlook has turned optimistic on both sides, a contrast to 2008-2009, when growth subsided and bilateral relations became ambivalent. With cheaper energy and recovery of manufacturing, U.S. industrial employment has increased. Mr. Modi’s meetings in New York and Washington convinced American businesses about a potential exponential spurt in India-U.S. commercial exchanges and investments.

U.S. mandarins and think tank experts remain somewhat sceptical, however. They insist that any relationship is a “two-way street,” and that a pronounced pro-American affirmation was missing in Mr. Modi’s discourse. During his interaction with the Council on Foreign Relations in New York, Ken Juster reflected these concerns when he asked Mr. Modi about India’s vision for a “strategic partnership” with the U.S., and the potential for collaboration between them to work on regional and global issues. Mr. Modi’s answer got lost in translation. Meanwhile, sections of the Washington élite are trying to muddy the optics of Mr. Obama’s visit by making fun of his lame duck tour to watch a parade, allegedly neglecting his domestic agenda.

“The U.S. government appears anxious about India’s regulatory environment, intellectual property rights protection standards, local content provisions, and the absence of a bilateral investment treaty.”

The bilateral relationship has considerably evolved from the early decades of estrangement, which were punctuated by positive exchanges that did not leave a long-term impact. The Cold War legacy of viewing India as a nuisance is long since over. Mr. Obama looks at India-U.S. ties as “one of the defining partnerships of the 21st century.”

Indeed, there has been a steady transformation of India-U.S. relations from about the end of Mr. Clinton’s presidency. Though modest, bilateral trade has shown a consistent upward trajectory. India is a serious buyer of U.S. weapons, and carries out more military exercises with U.S. forces than those of any other country. There are more Indian students in the U.S. than anywhere else, and the Indian diaspora is nowhere more prosperous than there. Among the great powers, the U.S. has done the most to extricate India from a technology denial regime, bringing the two closer than ever.

Bilateral drivers of the relationship
When they meet, the core challenge of the two leaders will be how best to harness their personal and national goodwill towards each other for positive outcomes that relate to the concerns of the common people.

India and the U.S. need each other because better ties will help create more jobs, growth and development. Within the wide spectrum of the India-U.S. engagement, the areas of defence, energy, and technology hold the greatest promise. The employment-generating “Make in India” effort, focussed on power, communications, electronics, and high-technology engineering, is not for providing shoddy goods for the home market but to make India globally competitive. With the world’s best technology, the U.S. will be India’s preferred partner in this endeavour.

On defence cooperation, the challenge is to utilise the Defence Framework Agreement and the Defence Trade and Technology Initiative to propel co-development and joint production of defence equipment and platforms. On co-production, after initial reticence, India has indicated a willingness to proceed on four of the 17 items on offer, and has presented a supplementary list of 13 more. In the talks thus far, possible agreement is confined to two modest proposals, the short-range UAV Raven and a surveillance module for the C-130 Hercules aircraft. The rest will be considered only “down the line.”

India’s military modernisation cannot be done without proactive cooperation with the U.S. India needs greater deterrence capacity, including a bigger naval presence in the Indo-Pacific. A case in point on what more can be done is underwater drones. These can be used at ocean choke points, such as the Strait of Malacca, which abuts the Andaman Sea, through which a Chinese nuclear attack submarine passed last autumn. Following a joint U.S.-Singapore exercise last October, the U.S. Chief of Naval Operations confirmed U.S.-led underwater surveillance cooperation with Australia, Japan, Korea and Singapore. Can the U.S. help India develop and build undersea and high-altitude drones, or help us lease a nuclear submarine? That could capture the imagination of Indians.

The U.S. government appears anxious about India’s regulatory environment, intellectual property rights (IPR) protection standards, local content provisions, and the absence of a bilateral investment treaty. There is an exaggerated fear of compulsory licensing for pharmaceuticals. India’s exclusion from the Trans-Pacific Partnership negotiations is held as an example of India being a trade outlier.

The U.S. helped resolve India’s concerns about agricultural subsidy, thereby paving the way for the World Trade Organization’s agreement on trade facilitation. India has introduced market reforms in its own interest. Its recovery is being propelled by improved decision-making, targeted deregulation, increased infrastructure investment, and greater business confidence. India remains committed to an open, rule-based international trading regime. To expect it to accept a higher standard on IPR protection, above and beyond India’s existing multilateral commitments, will be unrealistic.

India has counter-concerns about protectionism and the new U.S. immigration law and has mildly protested in WTO discussions against the U.S. “Buy America” legal provisions. The U.S. refusal to negotiate a Totalization Agreement with India really rankles, when countries like Finland and Sweden have concluded such an agreement with India. Indian H-1B workers contribute, by way of “involuntary” deductions, an estimated $3 billion annually to the U.S. Social Security Trust Fund towards pensions they will never receive because their stay in the U.S. will not be long enough.

On climate change, the Sino-U.S. agreement is being held out as an example for India to emulate. China’s current emissions are four times larger than India’s and over twice that of the U.S. Given the wide gap between the emissions of India and China, as also the different levels of economic development, the question of India capping its emissions is premature. India’s focus instead will be on practical cooperative measures on energy efficiency and non-conventional sources of energy, again a key area of India-U.S. partnership.

The bilateral agenda is full and there are clear issues on the table from both sides. While officials have been labouring below-the-radar to untangle some of these, the directions from the leadership will provide breakthroughs over time, as India-U.S. exchanges have demonstrated, most notably on the civil nuclear agreement.

The strategic relationship

If the India-U.S. relationship is to become more robust, there has to be greater strategic entente. This must start with India’s neighbourhood, where the historic policy discordance has abated, but not been fully bridged. On China, though uncoordinated, there is now a remarkable similarity of approach. Both India and the U.S. seek comprehensive engagement with China, are reinforcing ties with countries on China’s periphery, strengthening their own military preparedness, and seeking to revitalise their economies.

In contrast, a telling hiatus has developed in India-U.S. strategic dialogue in other areas of India’s contiguity. It was so earlier in respect of Myanmar, and now on Bangladesh. At the time of elections there last year, China and India found themselves together against extremist and sectarian forces intent on disrupting the polls, while the U.S. seemingly stood on the other side. If the U.S. President were to go by the standard U.S. positions, he might suggest a course for Indian policy towards Pakistan — normalisation of relations, resumption of dialogue, and strategic stability. Instead, he might do better by discussing stability in both Afghanistan and Pakistan about which India has its worries. There is clearly room for a fuller India-U.S. dialogue on security in West Asia and Central Asia, the management of the Indian Ocean, and what U.S. rebalancing in Asia really means in material terms for India and the Indo-Pacific.

The way ahead

India’s fractious democracy and its fundamental asymmetry with the U.S. will constrain its capacity to meet U.S. expectations of full reciprocity. This relationship must be painstakingly built, brick by brick. It can be done with commitment at the highest level, and sensitivity for each other’s concerns.

India-U.S. ties are rooted in common values and in increasingly convergent interests. Necessary and sufficient conditions do exist today for resetting this vital partnership. The ideological polarisation of their domestic politics does not impact adversely on its present and future trajectories. What the two countries need are steady hands to steer a proper course — Mr. Modi and Mr. Obama are preparing the ground for it by their positive narrative.

Carbon tax to meet climate concerns

India can display bold leadership by imposing a carbon tax on all fossil fuels in proportion to carbon dioxide emissions

Oil prices have plummeted since June 2014 by almost 60 per cent. This has obviously proved to be a bonanza for oil-importing countries like India just as it has seriously hurt oil-producing nations like Russia and Iran. The fall has been unexpected and what has added to the mystery is the behaviour of Saudi Arabia, the traditional “swing producer” in OPEC which has chosen not to cut production in order to boost prices.

The main reason now being adduced for the oil price decline is the re-emergence of the U.S. as a major hydrocarbon producer because of exploitation of its substantial shale deposits. Lower than anticipated demand, especially from countries like China, and anaemic economic growth in Europe have added to the pressure. As to the response of Saudi Arabia, the best guess is that it does not want to lose market share like it did the last time when it cut output to keep prices up. There are, of course, the usual conspiracy theories — that the Americans have put pressure on major OPEC oil producers not to cut output so that Russia could get hurt from falling prices. Another Byzantine view is that Saudi Arabia is not too unhappy with these prices since its arch-rival Iran is getting hurt and because over the medium-term it would discourage the development of new sources of supply that would threaten the Saudi position.

Revisiting an old idea

Whatever be its backdrop, the current oil price scenario offers the right moment for the international community as well as for major carbon emitter nations to revisit an old idea that has been around for quite some time as a way of dealing with the challenge of climate change — and this is a carbon tax. Economists mostly agree that such a carbon tax is the way to go, but it has faced tremendous political resistance, especially in the U.S. A couple of days ago, however, the influential economist Larry Summers, who has been a close adviser to both President Barack Obama and former President Bill Clinton, came out publicly in its favour, pointing out that a tax of $25 per tonne of carbon would add just 25 cents to the price of gasoline. There have been other intellectually weighty voices in the past who have advocated a carbon tax, William Nordhaus being perhaps the most prominent amongst them.

It is the political resistance to any form of taxation (what the late Sukhamoy Chakravarty, the distinguished Indian planner, had called the emerging fiscal sociology) that has led to systems of cap-and-trade being adopted to deal with the emissions problem. The EU has such a system, the Chinese have seven pilots and have announced a national initiative beginning next year, and the Americans too are putting it in place for carbon emissions from power plants. A cap-and-trade system puts a cap on the quantity of emissions (which is flexible) and the “rights” to emit are then traded for a price among classes of consumers. It has considerable appeal since it is “market-based” and it has actually been used very effectively to deal with the consequences of sulphur dioxide emissions from power plants in the U.S. (the “acid rain” problem as it is usually called). The cap-and-trade system does provide incentives for emission levels to decline. On the other hand, a carbon tax is much simpler and straightforward to design and administer since it does not involve fixing emission “quotas” for each emitting industry, which is technically very cumbersome.

“A carbon tax is simple to administer since it does not involve fixing emission 'quotas' for each emitting industry, which is technically very cumbersome”

William Nordhaus himself in his classic “The Climate Casino,” after an elaborate analysis of the two approaches, writes: “If I were put on the rack and forced to choose, I would admit that the economic arguments for carbon taxation are compelling, particularly those relating to revenues, volatility, transparency and predictability. So if a country is genuinely unsure, I would recommend it use the carbon tax approach.” Dale Jorgenson, one of the pre-eminent economists of our times, has taken the Nordhaus approach and asked the question: how to make it politically acceptable? In “Double Dividend: Environmental Taxes and Fiscal Reforms in the United States,” Mr. Jorgenson and his colleagues make out a persuasive case for a carbon tax in the U.S., but with a twist: that the revenues be used for a capital tax reduction with other countries free to recycle revenues in the matter they deem fit.

Actually, India has a carbon tax of sorts. It is not called as such but the United Progressive Alliance government’s budget of 2010-11 introduced a cess of Rs. 50 per tonne of both domestically produced and imported coal. Last year, this was doubled. However, the idea of this cess, it must be admitted, was less to curb carbon emissions but more to raise revenues for the National Clean Energy Fund. Of course, the Fund itself could well support carbon mitigation initiatives but its take-off has been slow so far since Finance Ministers see it as a source of mitigating not carbon but the fiscal deficit. The Fund has close to Rs. 15,000 crore already accumulated in it and this will grow rapidly as coal consumption increases. But the important point is that India already has an important half-step, even though its version of a carbon tax is not economy-wide and it is far below the levels that are generally accepted as being desirable (around $20-25 per tonne of carbon).

Mr. Summers’ plea comes with a catch: he wants the U.S. to impose a carbon tax on its own as well as a tax on the carbon tax on its imports, in order to goad other countries to adopt the carbon tax route. Perhaps he has China in mind since it has been estimated that at least a fifth of China’s emissions are because of its export sector. He seems to think that this will be World Trade Organization-compatible. But it will pose a huge threat to the world trading system which has produced tangible benefits for those who have harnessed its potential — like China and India — if it were to be used to meet climate policy objectives.

Requiring a different response

Some years ago, drawing inspiration from no less a person than Lord Keynes himself, the Nobel Laureate James Tobin proposed a tax on short-term currency transactions. This was later expanded to cover all short-term financial transactions and is widely known as the Tobin Tax. But it remains on paper as to which periodic obeisance is paid. The carbon tax is a similar development deity but it is an idea whose time has undoubtedly come given the current and expected oil price situation. In the past, oil prices have declined as they have in recent months; the commitment of countries to make the transition away from fossil fuels has perceptibly wavered. This time around, however, given the climate change imperative, our response has to be dramatically different. A carbon tax imposed on all fossil fuels in proportion to carbon dioxide emissions would signal that transformed thinking. It would generate the needed resources for low-carbon investments in a manner that does not add to the fiscal deficit and provide the impetus to a meaningful global agreement in Paris later this year in December. This could well be India’s moment of bold leadership